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Sunday, January 12, 2014

Over the past few years, several people have asked me about MetricStream’s history and what I learnt from my experience. This November, MetricStream turned 14. That sounds like an eternity in today’s startup world where several companies have gone from inception to IPO in less than seven years. Veeva, Twitter and Nimble Storage are a few names that fall in that category.

MetricStream went through three pivotal phases - inception as a platform company, transition to Quality Management and repositioning as a GRC (Governance Risk and Compliance) software company.

Inception - The Platform Company

Back in September 1999, Arvindh Balakrishnan, Albert Thomas and I were stuck in a hotel in Orlando during Hurricane Floyd. We had just implemented a worldwide system for Lucent (Microelectronics Division) to provide visibility into their inventory and production of semiconductor products. It was a large implementation that had costed over $100 Million and included state of the art real-time integration between multiple systems. As the system was rolled out globally, we found business users had limited access and control over business data - they had to rely on the IT department for everything. This lead to the realization that there was a need to democratize access to information within an Enterprise and provide business users the ability to act on that information. We started drawing up the specs for a software platform to address this need. Since most of our background was in building software for enabling business operations such as quoting, ordering, manufacturing, shipping/logistics, billing, costing and inventory management, we started designing a platform with that particular audience in mind.

Over the next 3 months, Arvindh and I worked on the initial prototype. We were able to sign three beta customers (including Lucent). I was working full time on the prototype while Arvindh worked on investor presentations. Thus, MetricStream was founded as SystemI (system-eye) with a goal to provide a technology platform for aggregating data from various business applications, delivering metrics and alerts and providing the ability to business users to act on it by making updates to data in various business applications.

From inception to raising our first round of funding in Jan 2000, we met with several investors. Ashish Gupta (Junglee, Amazon and Helion Ventures), Gunjan Sinha (eGain) and Dale Fuller were among our initial investors. The funding was made possible primarily due to the introductions made by Bhaskar Vasudevan, Neeta (my wife) and Arvindh Balakrishnan (co-founder). Bhaskar mentioned that his CEO (Dale Fuller was at Borland at that time) had indicated that he was interested in investing in startups. Our meeting with Dale lead to introductions to Gunjan and additional investors. With an angel round of $1.6M and a handful of marquee beta customers, we set out to build the platform. We hired our first employee, Dmitriy Rogatkin, an experienced Java engineer. With a small team of about 6 engineers in a small office in Sunnyvale, we started development. By Dec 1999, we had a working version of the platform. Arvindh worked on partnerships and was able to establish an OEM relationship with WorldChain. The team was highly motivated and worked long hours and weekends.

The market crash in April 2000 did not deter us. We continued at the same pace seeking customers, burning cash and looking for our next round of financing. Arvindh was able to sign Verizon as a customer in early 2000. That lead to an introduction to Quest Software, which made an investment of approximately $4M at three times the previous round’s valuation. Based on input from a VC, we renamed SystemI (system-eye) to MetricStream. It was perfect as it represented the key focus at that time - supply chain and operation metrics management. In our first 6 months of operations, we had $600K in bookings and a product deployed at Lucent.

With Verizon and a few new customers on board, we continued to plough through and added more features to the existing platform (Dashboards, ETL capabilities, Process Flows, Reporting and Forms). We were not signing up as many customers as we had anticipated, primarily because the market had disappeared. No one was spending as valuations were getting decimated by the stock market collapse. The board consisting of Arvindh, me, Marshall Senk of Quest Software and Gunjan (observer) was not overly concerned at this point. We would later realize that this was a huge mistake for not taking any steps to slow down spending. As we went further into 2000, we were unable to sign additional customers. It was the frozen tundra with almost $0 in IT spending on new software. Companies were in cost cutting mode, not increasing revenue. This is where we made our first mistake - burning cash when we didn’t have a clear line of sight to revenue or fund raising.

Transition to Quality Management Solutions

As we went into 2001, we struggled to find leads, let alone close any deals. For a small company with limited resources, we began to realize we had to focus on applications . Selling the platform was too hard with long sales and implementation cycle times. We had to pivot. We realized we needed to pivot from a platform company to an application company. We had interest from Teradyne to partner on developing a Quality Management solution for one of their largest customers. Teradyne’s MES system, SFDM, was also used at Lucent, so we were familiar with their product. We starting working with Teradyne on a POC for Solectron, a $20 Billion contract manufacturer at that time. We built a CAPA (corrective and preventive actions) module (part of Quality*Stream) on our existing platform (branded MetricStream EPM) and engaged in a POC. This was very different from anything available in the market with integrated alerts, dashboard, reports all delivered via a web application. The incumbent products at that time were either client server based or web applications with very limited capability. Given that our platform sales was not getting significant traction, we decided to completely pivot to Quality Management. The Solectron POC generated $50,000 in revenue with the potential for a $2 Million global rollout. This was going to be our key moment. A few days before signing the Solectron global agreement, disaster struck in the form of 9/11. It was a devastating blow. Solectron placed a freeze on the project as their revenue projections dropped to $12 Billion (a drop of 40%). With no revenue in sight, and cash left to last through June, 2002, it was time to do something drastic and reduce our burn.

Towards the end of 2001, we started working on establishing a development center in Bangalore. Bhaskar Vasudevan, one of the brightest people I’ve ever worked, joined us as our head of India operations. There was nothing he could not do. He could code, debug complex problems and at the same time find the most affordable office space in Bangalore on Richmond Road. After getting his MS in CS from RPI, Bhaskar worked in Oracle’s server technologies group. We started with a small team and recruited college grads both from the US and India for the team operating out of Bangalore. Peter Chow and Albert Thomas had joined us from Oracle. They were leading the efforts with our customers (Lucent, Verizon, WorldChain, IDEC, ITT-Canon). Throughout this period, the entire team took a huge paycut, in some cases as much as 70%. The team was working 7 days a week, developing new features, adding new modules for Document Management, Audits, Inspections and adding platform features. As a team, we worked harder than at any other time at MetricStream. The passion and motivation was perceivable right from our CEO, Arvindh Balakrishnan to our engineers in Santa Clara and Bangalore. In spite of the financial challenges, the pace at which we were adding features to the platform, working with our customers along with our close knit team, was unparalleled. This was one of my best professional experiences at MetricStream. Teams are motivated by passion, trust and belief that they will make an impact, not by monetary incentives. In my view 80% of the intellectual property was created from the first $5 Million in funding and 20% from the next $50 Million.

Arvindh was spending most of his time on fund raising activities. It was frustrating for both of us since VCs were not investing. Quest was not making any further investments, new VCs were not sure what they could do with a limited market opportunity in Quality Management. We soon learnt a lesson - don’t waste time looking for funding, unless it is in one of the hot areas. We went back to our investors and Gunjan was grateful in extending a bridge to the company. With a bridge loan, we went back to seeking customers. In one of the most aggressive outbound sales campaigns lead by Arvindh, we closed 5 customer deals within a span of 3 months. Customers included Boston Market, Albany Molecular, Taylor Made, Wolverine Worldwide. In parallel, we started consulting to increase revenues. Our background in Oracle Applications, and with help from Arvindh and Sonny Singh, we were able to consult at Agilent Technologies (spin-off from HP). For 6 months, Peter Chow and I worked at Agilent. It was an interesting time. I worked from 5pm to 4am with Agilent’s team in Singapore and Malaysia from their Palo Alto office and went into the MetricStream office in Santa Clara between 11am - 4pm to work on product design and participate in meetings.

As we headed into 2003, the financial stress from the last 3 years was beginning to impact folks. Arvindh moved to Raleigh with his family and started to work remotely. He had also been thinking of moving out of his CEO role and doing something else. With the product maturing and a decent pipeline of leads, Arvindh decided to move out of his CEO role and go back to Oracle. After he went back to Oracle he had a variety of field leadership roles and now runs the Customer Experience Business Group. Arvindh’s twitter handle is @CX_ORCL. A year later Bhaskar left MetricStream. He co-founded Qwikcilver (India’s leading gift card company), where I’m a minority investor.

In parallel, we started looking for funding and working on new customers. Subway was a huge customer win based on our product footprint at Boston Market. We introduced Audits and Complaints Management modules. Now we had a platform, an initial set of customers, but we still lacked sufficient revenue to be profitable. The market had improved and we were getting term sheets from VCs. There were opportunities for Quality Management in Pharma, Hi-Tech, Manufacturing and Food Services industries. However, it was still a limited addressable market.

Kleiner & Repositioning to GRC

One of the biggest issues MetricStream faced in 2004 was the barrier to entry into life sciences. Due to our balance sheet, we were having a difficult time closing pharma deals. This was about to change. We were able to connect with Vinod Khosla and work out a deal to fund MetricStream by merging with Zaplet. This would give MetricStream the backing of Kleiner Perkins and provide much needed cash (almost $12 Million) as a part of the overall deal. We had several term sheets, but we decided to go with the KP deal. This reminded me of a conversation with Anthony Lee at Altos Ventures. During one of our meetings he asked who my ideal VC would be and I promptly responded Kleiner. I was thrilled that this was about to come true. Anthony Lee and Altos Ventures were probably the most impressive of the VCs we worked with, but unfortunately we were unable to bring them in to fund MetricStream. VCs are not all bad, there are a few really good people in the VC business.Ashish Gupta at Helion Ventures is great example of one such VC. I say this after having realized over the years that there is a time and place to raise money from VCs. With the right VCs, you can build a successful company.

After the merger with Zaplet, Shellye Archambeau took on the CEO role and Gunjan the Chairman role. As CTO, I had responsibility over products, services, platform engineering and customer support. Shellye Archambeau brought balance and structure to the company and is one of the reasons why the company had some sense of sanity.

Kleiner and Vinod Khosla brought tremendous value - it was unbelievable! I’ve had the opportunity to meet Vinod during board meetings and see him in action. Although, I was told he had mellowed down, his energy and passion was incredible. We did not have to worry about fund raising any longer. We had access to funding unlike before, no more due diligence meetings or spending time on Sand Hill Road. Our problem was now execution, not capital. However, excess capital is a double edged sword - it lets you execute at a scale that is hard otherwise, but it also makes the team less hungry. This was an issue once MetricStream was funded by Kleiner.

The focus shifted to customer acquisition and pivoting to GRC. With Sarbanes-Oxley emerging as a significant compliance requirement, Kleiner believed compliance would be a big space going forward. We had the platform capabilities to build a compliance application. We started building a new set of applications to address compliance issues and rebranded the platform to MetricStream ECP (Enterprise Complaince Mangement Platform). The existing footprint of apps including Audits combined with the existing platform capabilities provided the foundation to expand to other GRC functional areas as well as new verticals. In 2005 and 2006, we were able to expand the customer footprint tremendously. Although Zaplet was part of the acquisition, unfortunately none of the technology ever made it to the MetricStream platform (besides in marketing collateral). As MetricStream started to grow and the number of customers increased, the focus expanded to initiatives such as complianceonline.com. It was a good idea but it had a limited audience.

With the limited market opportunity in process GRC, we explored areas that were automation heavy and less process oriented. However, we did not move fast enough, especially into segregation of duties. We saw Virsa (acquired by SAP) go by, the same with Logical Apps (acquired by Oracle), OpenPages (acquired by IBM) and Paisley (acquired by Reuters). As companies grow, it becomes increasingly hard to change. Our willingness to take on more risk or change had waned.

By 2006, with the company back on its feet and an expanded management team, improved balance sheet and marquee customers, I felt it was time to work on something different. I resigned from MetricStream’s board and shifted my focus to OpsDynamics, a completely different venture that I co-founded with Vasant Sanjeevan, a colleague from my days at Oracle. It was self funded with a great set of customers and we had ultimate control of our destiny. Over the last 6 years at OpsDynamics, I’ve had the opportunity to work on various projects, including several at Google, and be a part of something special! A few months after I left MetricStream, Vinod Khosla resigned from the board.

Post 2006:

With the financial meltdown in 2008, MetricStream stumbled into a new market, the financial services market. This market opened the doors for MetricStream’s solutions in new vertical markets. RFPs started to flow in and the demand continued to increase. Since 2008, the growth has been strong across financial services, life sciences, energy and hi-tech industries.

So, while it has taken 14 years to get to where it is, it wouldn’t have been possible without the efforts of the early contributors (several of whom are still at MetricStream). Without all the heavy lifting from Arvindh Balakrishnan, Bhaskar Vasudevan, Albert Thomas, Peter Chow, Dmitriy Rogatkin, Carl McCauley, Ted Daley, Vegi Srinivas, Supradeep Appikonda, Hongen Zhang, Sureshram Venghatachari and several others, the company wouldn’t have survived. I can’t thank these folks enough for their contribution and sacrifices!

Hats off to the current MetricStream team, including Shellye, Gunjan and Venky Yerrapotu for their continued commitment and leadership as the company grows beyond 1,000 employees and rides the GRC wave.

Key Learnings

There is no question the experience at MetricStream was invaluable. Arvindh and I did several things right and several things that we’d like to have back. Would we have started MetricStream had we known what was in store for us? We probably would have, except we would have done a few things differently. We would have conserved cash more aggressively when the market crashed, built a deeper board, taken money early on from a VC in addition to Quest (corporate investors are not as resourceful), and gone after larger market opportunities in the GRC space.

So, here are a few parting messages. Ensure you have 12 months of cash, ensure you have a line of credit that you can draw on. Build a capital efficient company, but ensure you build a product that delivers significant value. Ensure that you have a board with deep pockets (VCs with deep pockets included). Ensure you have a huge market opportunity . Do one thing and do it really well. Be prepared to stick through it for 10 years or more. Invest in your product. It really comes down to your product and market in this age of cloud and mobile in the Enterprise. Most important of all, spend time building a work culture that will make the journey fun - it matters in the long run!

Monday, September 03, 2012

The other day, when i was driving with my in laws home from dinner, my father-in-law asked a question that got me thinking. He asked what changes stand out in the Bay Area since I arrived here in 1992. Honestly, there was very little i could think of at that moment that I thought were worth mentioning, especially, given the extent of changes he had seen in India over the last decade. I decided to give it some more thought and came up with 5 things that have changed (or not) for better or worse in the last 20 years.

1) Communication

I remember at my first job at Oracle, I could dial-in and connect to the unix server, compile code, check-in files and check emails. Besides that, most of the communication was over conference calls and emails. A lot has changed since. Communication has become more instantaneous and ubiquitous - thanks to smart phones. If you use Google talk, hangout etc. there are multiple ways to communicate with your co-workers - something that we never imagined back in the earlier 90s. It is still debatable whether we are more productive, but it is a whole lot easier and quicker in terms of responsiveness.

2) Inflation

While folks in developing countries complain about inflation, there has been significant increases in housing prices (rent & cost of ownership), starting salaries, and even cost of necessities such as milk and bread in the Bay Area. Starting salaries have clearly doubled over the last 20 years. The same goes for rent and college fees. In the next 20 years, I guess its not too far fetched for a simple single bedroom apartment to cost $4000 and for a fresh grad with a CS degree to make $160K a year. While this pales in comparison to inflation in developing countries, its still a substantial increase that will impact us in the future.

3) Corporate Landscape

I still remember, it was cool to work for Cisco, Apple, HP, Oracle and Sun back in the early 90s. Now, its a completely new breed of companies that are cool to work for. Apple is the only company that has withstood the test of time and consistently ranks at the top with Facebook and Google. Oracle and Cisco have become mature companies - something I could have never imagined back in the 90s. Its hard to imagine a mature Google or Facebook, but in 20 years the corporate landscape will look very different as the old guard makes way for a new generation of companies.

4) Traffic

There is no doubt the newer cars are much more comfortable, loaded with technology, economical and fun to drive. However, traffic isn’t much better than it was 20 years ago. Traffic seems to get worse everyday, even as new lanes are added and existing highways are twisted and turned to ease congestion. I think with all the brainpower and capital in the valley, this is one aspect of our lives in the bay area that needs to improve. Perhaps, self driving cars such as those from Google will pave the way to ease traffic congestion and make roads much safer.

5) Media & EntertainmentWhile this is not a Bay Area specific phenomenon, it is worth noting that the profound impact technology is having in the way we search, access, consume information, movies, music, video games is worth noting. None of this existed 20 years ago,
but now its here to stay as it continues to evolve with time. I recall attending a seminar at Stanford where Lewis Platt, the then CEO of HP, displayed a device which looked like what became the iPaQ, and spoke about how one day handheld devices could communicate with home appliances etc. Thanks to the iPhone and Android devices, that is now a reality. I see my son playing real time collaborative video games on his console - the picture quality and sophistication of these games continue to amaze me everytime i see them.

I think the next 10 years will be very different. The contributors to change are now a much larger community. Back in the 90s, the world wasn't as connected. Now with the velocity of information and a global pool of contributors, the rate of change will the much faster over the next couple of decades. Things which we take for granted will disappear. It may sound a little far fetched, but can you imagine paying $120K for a year of college in 2032?

Friday, March 12, 2010

It is with great sadness that I'm writing this post. Almost two weeks ago, a friend and colleague, Venkat Parimi passed away. The news came as a shock to all who knew him. I was able to attend his memorial service on Sunday, March 8th, and was fortunate to hear stories and experiences from several people whose lives he had touched over the past 15 years.

I first met Venkat 13 years ago. I had just left my product development position at Oracle and was excited to be on my first consulting assignment at Western Digital in Irvine. Faced with a technical challenge, I approached Venkat for help. Little did I realize that I was going to get more than what I had asked for. He advised me to change my mind set from a product developer's to a consultant's. Of course, he did help me with the specific technical issue but it was his subtle sound bytes that left a lasting impression. A few months later, I moved on to another client engagement, but we kept in touch. He occasionally called me with technical questions.

It wasn't until a few years later that our paths crossed. In 2000, my co-founder Arvindh and I had just raised our first round of funding for MetricStream. We invited Venkat to help us brainstorm product features, architecture, data model etc. . For over a week, he attended daily sessions and provided his invaluable design inputs. Those inputs became an integral part of MetricStream's platform and continue to live on at numerous customer sites. It was the internet boom and we were riding a wave. We asked Venkat to join us, but he politely declined and said that he wanted to get his own product off the ground - something he was deeply passionate about.

Over the next few years, my interaction with Venkat reduced and it wasn't until around 2005 that I was hooked by what he was working on, Troove. Troove was a novel product idea. More importantly, it was his design philosophy that left an indelible mark. His philosophy of 'Apple elegant and Google simple' was reflected in his work and life. He lived a simple life - one that revolved primarily around his work and passion for building products and solutions. Elegance was fundamental to anything he designed or developed.

Not often does one come across someone who is passionate about everything they do and live by a set of principles that positively influence those around them. Venkat was someone I could go to with a challenging technical issue and be confident that I would get a great solution. More importantly, it is rare to meet someone who makes you better and motivates you to be your best - he was one such person. I am thankful to him for that and I will miss him dearly.

Monday, August 10, 2009

Prior to the market crash in 2000, enterprise software ruled the software landscape. i2, Oracle and SAP were in high growth mode. The large system integrators were the beneficiaries of most of the IT budgets. Large ERP, Supply Chain and CRM implementations were the primary projects for CIOs.

Fast forward 10 years and the landscape is vastly different. The large software companies have gone into sustenance mode and are aggressively seeking avenues for growth. Its not uncommon to see 60% of their revenues come from support and maintenance. The business applications software giants are no longer releasing game changing applications or solutions. The large system integrators, except for IBM, have been reduced to niche players and are competing with the large offshore vendors. The large offshore vendors have displaced the traditional SIs. They are gradually acquiring more talent while keeping costs low. The tables have completely turned especially for CIOs - they are now in the driver's seat negotiating deals which are clearly in their favor. The traditional SI firms are no longer beneficiaries of large budgets and are focusing their resources on assisting companies with more value add services such as IT strategy, architecture and advisory services. Their engagements tend to be shorter. Besides these changes, there are several macro level shifts that are taking place, some of which could be attributed to the current recession.

1) Accelerated shift towards SaaS solutions

SaaS has clearly emerged as a legitimate option for enterprises. Who could have imagined a SaaS solution for Expense management from a small company called Concur could be the gold standard in 10 years. SaaS has become pervasive in large enterprises. Its common to see integration projects between Oracle or SAP ERP with SaaS solutions. The shift is getting accelerated due to the recession. Larger companies are adopting SaaS solutions in the area of payroll processing, expense management, real estate management, compliance management and contract management among other areas. The SaaS providers have to address challenges pertaining to lowering their cost of sales and marketing but the value to customers is unquestionable.

2) Shift towards the Cloud

The core ERP in the larger organizations continue to remain on-premise but its not long before they will move to a secured cloud (a VPN secured cloud) that offers cheap and secure computing. It will alleviate the need for heavy servers that are only put through their paces during month end or quarter end processing. While Oracle and SAP offer hosted offerings, they are insanely expensive. They are incredibly hard to get out of and they entangle customers in processes and contracts that are impossible to extricate from. Since hosted offerings aren't a viable long term option for CIOs, customers will accelerate the shift of core ERP to a cloud environment where they are managed not by the software vendor but by IT organizations equipped with system management tools designed specifically for the cloud. SAP has announced it is working with Amazon on POCs and you can count on Oracle not being far behind. Custom apps developed by enterprises will be deployed on the cloud instead of Virtual Machines. The cloud will continue to become far cheaper, scaleable and reliable than anything currently available. However, there are several challenges that large software vendors are faced with. Their current software and databases will not work in the cloud and even if they do, they will not realize all the benefits cloud computing offers. For this to change, their underlying stack has to change. Nonetheless, with the rapid investment from software vendors, customers and VCs, true grid computing will soon become a reality.

3) Embracing niche custom apps

That leads me to niche custom apps. CIOs and business owners are realizing the value niche vendors can provide. They tailor solutions to your particular industry's business needs and remain focused on delivering unparalleled customer satisfaction. While there will be a handful of players (mostly Oracle, SAPs of the world) that provide business applications that address most of the mature business processes, the newer players will provide niche apps that address core strategic business areas and processes. Whether its billing for video service providers or revenue and reconciliation for insurance providers, the niche custom apps delivered by smaller services organizations deliver significant value to a business. These kinds of solutions or applications cannot be built or delivered by the traditional SIs or consulting arms of offshore vendors who lack the agility and understanding of business processes required to deliver such business applications. Instead, they are being built by local mid and small vendors in close collaboration with IT and business. This trend will continue to gather momentum even after we are out of the recession.

4) Business Process Insourcing

Processes can be run far more efficiently using a blended model that uses SaaS software complemented by an inhouse team of process specialists. Organizations are finding it is far cheaper and works far better than Business Process Outsourcing (BPO). The costs are lower, there is focus on customer satisfaction and there is more control over one's data. The SaaS providers are typically smaller and are willing to bend backwards as compared to the larger BPO organizations that have become monolithic and lethargic. Innovators and forward thinking CIOs are moving in this direction. This model makes a lot of sense. For example, one can use Intuit Quickbooks in-house and run payroll far cheaper that lets say ADP or Paychex can. Similarly larger companies can use the same model but perhaps use one of the many SaaS payroll processing companies and complement them with inhouse staff to perform the processing. Its far more secure and cost effective than outsourcing to BPOs.

5) Desks without phones

This is a personal favorite of mine. I rarely use a desk phone. A cell phone combined with IM along with email is all that one needs. Already, several startups don't use landlines any more. Imagine the cost savings just by getting rid of all the desk phones. The desk phone will follow the typewriter into oblivion in the next 10 years or perhaps sooner. Services such as Google Voice offer some amazing features that will undoubtedly accelerate the elimination of the desk phone. Some of the forward thinking CIOs have already begun this process as a part of their budget cuts during the current recession. Its time for the desk phones to be carted away from corporate America.

What all this means is that in another 10 years, we will see a much different landscape. With our new found passion for frugality and the diminishing role of IT organizations, I wonder if IT organizations will transform or simply disappear in the next decade. This recession more so than those before is shaping how information technology is used and delivered to enterprises.

Friday, May 18, 2007

A few years ago, if you asked anyone at an emerging software company whether ASP/SaaS/On-Demand (referred to as ASP) solutions were for real, you would probably get a 50/50 response. Over the last year or so, I’ve been seeing a completely different scale of adoption of ASP solutions. This scale of adoption can only mean one thing – SaaS is here to stay. Not only that, small, mid-sized businesses, departments of large enterprises, and to some extent entire enterprises, are clearly embracing ASP solutions today.

Current Trends

A $100 million dollar hi-tech growth company is using anywhere between 10 and 15 different ASP solutions to manage business processes across all departments. The number may be lower or higher depending on the size of the company and industry. Some business areas where ASP solutions are being commonly used are:

An interesting trend now is that some of the established large enterprises are beginning to replace on-premise applications. Recent examples being Cisco (click here for details) and Merrill Lynch – something one wouldn’t have imagined a few years ago!

Why is there such a momentum for ASP/SaaS/On-Demand solutions?

There are primarily three reasons why there is such momentum for ASP solutions:

1) Pressure to lower IT Budgets

The pressure to lower IT budgets has always been there but with shifts in markets as well as large scale adoption of offshoring, the cost pressures on IT has been increasing. This trend will not change as there is competition from emerging economies.

2) Increasingly difficult for IT to address every business need

While prices of software, resources, and infrastructure have been going down, the complexity has increased exponentially. An IT department has to deal with more tasks at every layer of the infrastructure and business application. An IT department did not have to deal with wireless networks before, now they do; they did not have to deal with open source stacks, now they do; they did not have to deal with the increasingly complex set of security requirements, now they do; they did not have to deal with SOX compliance, now they do! As a result, their constrained resources are stretched and their ability to support business needs has become increasingly more challenging.

3) Increase in confidence to allow data reside outside the four walls of the enterprise

The widespread adoption of Salesforce.com has instilled confidence in storing key data outside the four walls of the enterprise. In my experience, the security of applications residing in 90% of the enterprises is far less compared to those offered by established ASP solution providers. Most ASP solution providers now allow the customer to export data out and store them locally in their enterprise.

What is the biggest problem that ASP/SaaS/On-Demand solves?

It takes away complexity and friction. It solves the complexity around implementation, the complexity around hosting, upgrades and resulting delays and the frustration business users have to go through with on-premise applications. Most ASP application still lag in terms of functionality compared to their on-premise counterparts but they solve the critical issue of complexity and friction. This is the one most important factor which I believe is driving their success.

Challenges that ASP/SaaS/On-Demand face today

1) User Management

Each ASP solution has its own user authentication and authorization model. Imagine getting new employees authorized into multiple hosted applications and ensuring that their accounts are disabled when they leave the company. The same is true with partners who are granted access to applications. With companies moving towards an integrated single sign-on model, the ASP solutions are an odd ball. Currently, I’m unaware of single sign-on solutions for ASP solutions.

2) Lack of support for integrated business processes

Integration of business processes managed in different ASP solutions can be a challenging integration effort. Most ASP solution providers charge an arm and a leg for integration. This is a huge challenge for businesses who want to use systems for managing integrated business processes.

3) Information Integration

Integrating ASP solutions with back office systems is a challenge. While there are middleware solutions to enable the integration, this continues to be a challenge because ASP solutions reside outside the company’s firewall and data is completely insulated behind the ASP providers firewall.

4) Unified Master Data Management

Lack of master data creates significant challenges for ASP solutions. It becomes even more challenging when the ASP solution becomes the source of master data. Systems that need the master data from the ASP solution do not have an easy way to obtain this information. For example, an employee’s office location may be stored in an ASP Facilities Management system. The internal LDAP/Active Directory may not contain the latest and the most accurate employee location information; therefore, one must somehow obtain the employee’s location information from the Facilities Management system.

Opportunity that ASP/SaaS/On-Demand solutions provide

1) User lifecycle management

A simple to use system that can manage the entire user lifecycle from hiring to the termination of employees, contractors, partners, customers and suppliers specifically in the context of managing ASP solution access. Such a system would alleviate the growing pain of companies that increasingly depend on ASP solutions.

2) Support for canned integrated business processes

Currently, most ASP solution providers provide APIs to integrate with their systems. However, the effort and complexity of integrating on-premise applications with ASP solutions is a major roadblock in the adoption of ASP solutions. There is a large opportunity for providing integrated solutions that enable seamless business process integration. An example would be providing order status visibility in salesforce.com or providing visibility into outstanding customer invoices in salesforce.com

3) Easier information access

There are several solutions that enable users to query data from their ASP solutions right to their desktop. In fact, several of these solutions are easier to use and more secure than what is available from on-premise applications. However, there are no out of the box solutions in the market that allow users to view and analyze information stored across multiple ASP solutions. The arcane and expensive approaches of pulling data into a datamart or datawarehouse and then running traditional BI tools seem to be the most prevalent.

4) Master Data Management support for ASP solutionsDeploying ASP solutions on a broader scale in an enterprise is usually an issue due to the lack of master data management systems in most SMBs. There is a significant need to address master data management issues so that ASP solutions can easily use data about products, customers, price lists, vendors etc and, in some cases, be the source of the master data.

A win-win situation for customers and service providers

Companies such as Salesforce.com and RightNow Technologies are proving that the ASP model works. You never hear horror stories about Salesforce.com implementations failing. The single instance model is a lot more scalable, supportable, and profitable in the long run. The non value-add services that companies perform to support multiple stacks such as app servers, operating systems, platforms, software versions etc. should be a thing of the past.

If the business users can deal directly with the ASP vendors, and the ASP model enables them to do so, the entire IT organization can focus on more value add initiatives rather than playing block and tackle with business users.

Final Comments

If you are an independent software vendor that has not started working on an ASP strategy, it’s time to get serious about it. Some may argue you are late but I believe that the ASP era has just started. If done right, it could very well be the tipping point for your company!

Monday, December 25, 2006

I was recently in Bangalore and Hyderabad on work as well as vacation and stumbled across something very interesting. While looking through the financials of each of the top 3 offshore providers, Infosys, TCS and Wipro I noticed their incredible margins and revenue growth for '07.

More interesting than their phenomenal revenue growth was their margins. Given all we hear now from offshore teams is that costs are rising and retention is so hard, these companies are showing stronger margins than ever before. Either their billing rates have been going up steadily and/or they are finding ways to reduce or keep their costs steady. Perhaps, they are doing a bit of both.

What is interesting is that there is a large resource pool in the Tier 2 cities or perhaps even the Tier 2 or Tier 3 colleges that is willing to work harder and meet commitments at a much lower cost than what is widely known to most clients. These companies seem to be tapping into this pool quite effectively.

If you are headed down the path of offshoring and have the right connections, you should explore companies that offer resources based out of Tier 2 cities. If you are committed to offshoring, at the end of the day, you will spend tons of time and sleepless nights providing detailed specs, managing offshore projects and spending time and money on QA. Of course, once your team has learnt your product/system and is trained, you will see benefits that will justify all your initial pain. If the pain remains the same, why not maximize your cost savings? This line of reasoning works only if the work entails simple coding typical of business applications and not some complex engineering tasks such as chip design or complex algorithm development.

Bottom line - there is a huge talent pool that is outside the Tier 1 cities in India that is untapped and offers tremendous opportunities to clients and software service providers that will not go unnoticed for long. While I was aware of this in the past, it hit home when I saw it first hand!

Monday, November 06, 2006

If you work for a company with revenues over a Billion $s a year, you probably want to save yourself some time by ignoring this article. For those that work in IT or a similar organization responsible for business applications, this may be worth your time....

I'm sure most of us that have been involved in evaluating software will agree that its extremely difficult to figure out which among all those offerings from seeming endless number of vendors is the right one for your particular business and more importantly a good fit for the business given the direction its headed. It’s usually the great demo and sales talk combined with a very attractive starter deal that gets most of us. While a great demo may reflect the vendor's knowledge and understanding of the business you are in, it may just be that the vendor has invested more in fine tuning their demos for every vertical.

Cost must be quantified in terms of what you actually pay the vendor and what you actually spend internally deploying and using it. While this may all seem too obvious, it’s amazing how we get sold on one or the other and completely ignore the overall picture. While a product may have all the bells and whistles, the question really is whether those are features your users need. Integration is often an overlooked area while purchasing software. Simply asking how you do integration is not sufficient. Most software vendors can answer that question. The real question is how much integration you foresee for your business going forward. If you do expect a lot of integration, you may want to have your data as close as possible so that you can have complete control on the data/APIs and make it available to applications that need that data. Integration is always expensive when you change requirements and add functionality in the app that sends the data or receives the data. You may spend almost nothing on the license but if integration costs are high you are probably going down the wrong path.

Feature/function fit is sometimes highly overrated. Again, don't believe what the vendor tells you. They always know that under certain conditions, the feature works but it my not work for all the conditions that are actually important for you. So, nothing beats trying out something and then making that assessment. You not only get to play with the software but you get to see the bugs and caveats which the sales folks conveniently never share with you. Open Source software is perfect if you want to try out something before deciding to buy it. Some of the On-Demand apps that are now available are truly amazing when it comes to value - most of them let you test drive before you sign up.

Last but not the least, be practical. Most of the established products have been around a while and those vendors are unlikely to make major improvements. They have long release cycles. Look at what is out there, try out some of the newer products and make an independent decision on what is best for your business. There is a lot of software/hardware being developed, faster, cheaper and better every day. Do your homework and even better, listen to folks who have used the product or evaluated it in the past.

Finally, if you believe that you should use software only from the established players such as Oracle, SAP or Microsoft, then you better be working for a $1 Billion plus company or one that is rapidly headed in that direction - they are safe bets and probably will do the job if you have deep pockets and resources to spare!